General Motors' Exit from India – A Wise Move?

EXCERPTS

In 2009, the global financial crisis left GM in serious financial trouble and resulted in the company filing for bankruptcy protection. GM’s bankruptcy marked one of the largest corporate bankruptcies in US history. Until that year, GM had been the largest carmaker in the world for over 77 years. The bankruptcy forced the company to sell off several of its popular brands.

GM had a 50:50 partnership with Shanghai Automotive Industry Corporation of China (SAIC) in China that it had formed in 1997 called SAIC-GM . The financial crisis prompted GM to restructure its global operations and led to a 50-50 partnership with SAIC to form General Motors SAIC Investment Ltd. (GMSIL) that was to manage GMI. SAIC paid GM US$ 500 million for its stake, as GM claimed that it had spent US$ 1 billion to set up operations in India.

On May 18, 2017, GMI sent shockwaves through the Indian auto industry, when it announced its decision to exit the market as part of GM’s global restructuring program. In a statement, the company said, “Last week’s announcement was a difficult one for GM India and a decision that was not taken lightly at all. It came after a lot of careful considerations and planning and after we assessed many different options.”.

Analysts believed that global compulsions were behind GM’s decision to exit the Indian market. They observed that for a company that had once been lauded for having high international ambitions, GM had failed to make a dent in several countries. From the time Barra became CEO of GM, she had closed or sold off 13 GM plants across the world, apart from exiting various markets due to low prospects. Barra stated that she did not believe in continuing in any market that did not provide GM with significant profits. ..

Analysts felt that the key reason for GM’s failure in India was the inability of the company’s top management to formulate a long-term strategy for the country. Moreover, GM frequently changed the corporate team in India, which they felt further muddled strategy execution...

India was the fifth largest auto market in the world and was expected to surpass Japan and Germany to become the third largest by 2021. Moreover, India had quite a low vehicle penetration rate, with only 32 vehicles per 1,000 people. Industry observers felt that these aspects of the Indian auto market indicated that there was a large space for growth, which they believed GM was losing out on by exiting. Kapoor added, “In my opinion, GM should not vacate the Indian market. If they vacate, they remove themselves from the hearts and minds of Indian consumers. Instead of a ‘vacate’ strategy, GM should look at a ‘vacation’ strategy. If the company can take another look at customizing the cars for the Indian market maybe they can return to the market.” ..

In Q2 2017, GM planned to include a charge of US$ 500 million to account for the restructuring of operations in India, Africa, and Singapore. The company planned to undertake various cost-cutting measures including having more of its cars use the same parts and engines. Moreover, by smarter engineering of its cars, it was able to bring down its planned US$ 5 billion investment in small cars for Mexico, China, and South America by about US$ 2 billion. In addition, the company withdrew from various low-margin businesses such as selling its cars at low prices to rental fleets. ..

Exhibit I:Segmentation and Pricing in India’s Car Market.Exhibit II: GM’s International Presence.Exhibit III: Performance of GM for 2007-2016 (In Millions of US$).Exhibit IV: Insight into the Key Players in Indian Car Market.Exhibit V: Sales and Market Share of GMI. Exhibit VI: Multinational Companies that Exited Indian Market after a Poor Stint.
Exhibit VII: Some Multinationals that Succeeded in India.